Global Turmoil Deepens - Analyst Blog

By Prabuddha Chaudhuri,

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The markets continued to trade weakly. Hang Seng closed down over 2%, KOSPI closed down 2.4%, the Australian market closed down around 2% and Shanghai closed down 0.7%. Feeding on the downtrend in the US economy, markets in the Far East and Australia are trending down. And why wouldn't they be?

As Europe wobbles, the US grows (September quarter growth of 2% as opposed to the estimated 2.5%) ever so slowly. US unemployment level continues at 9% for over two years now. Egypt appears to be shaping up for another rendezvous with Arab Spring, with Tahrir Square bursting into violence again. Consumer confidence around the world remains weak, with fears lurking that the global economy could be heading back into another recession.

In Australia, the House of Representatives has recently cleared the much-debated mining tax bill. Now, that would ruffle a few feathers among miners like Rio Tinto Plc ( RIO ), BHP Billiton Ltd ( BHP ) and Xstrata plc. These companies have sizeable operations in Australia and will have to pay an estimated $11 billion more as tax in the first three years.

On the other hand, Japan continues to struggle following the earthquake and tsunami that rocked the island nation in March 2011. Automotive giants like - Toyota Motors ( TM ) and Honda Motors ( HMC ) are reeling under the 'Fukushima effect' and the Thai floods. Both have suffered profit declines in the two recent quarters and the appreciating yen is not helping matters.

Europe is a major stumbling block in the road to recovery and rising Spanish bond yields are aggravating the Eurozone crisis further. Spain could well be the next tottering domino. The worsening scenario is gaining pace and appears to be engulfing most of Europe, even as solutions are being discussed and debated.

Policy makers are facing the dilemma of growth versus contraction, but they need to focus on recovery first by shoring up liquidity and reducing expenditure before the crisis reaches unsustainable levels. To quote Lao Tsu - 'The journey of a thousand miles begins with a single step'. The journey will be long and arduous, but it needs to begin. We need confidence restored in the markets.

BHP BILLITN LTD ( BHP ): Free Stock Analysis Report
HONDA MOTOR ( HMC ): Free Stock Analysis Report
RIO TINTO-ADR ( RIO ): Free Stock Analysis Report
TOYOTA MOTOR CP ( TM ): Free Stock Analysis Report
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: Investing , Business , Stocks
Referenced Stocks: BHP , HMC , RIO , TM

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